When should I file an AAR ?
BBA partnerships should file an AAR when they need to make changes to already-filed partnership returns . Generally , this applies to partnerships for taxable years beginning after Dec . 31 , 2017 .
How can I file an AAR ?
If the original return was e-filed , the AAR must be e-filed with Form 8082 , unless your tax software does not provide e-filing for these returns . All other returns should be filed with Form 1065-X .
Who files an AAR ?
Only the partnership representative can file and sign an AAR on behalf of the partnership . A partner can only file and sign an AAR on behalf of the partnership if they are also the partnership representative . If no partnership representative designation is in effect due to a failure to designate a partnership representative on the originally filed Form 1065 , the partnership may submit Form 8979 with the AAR to designate a partnership representative . The designation is treated as occurring prior to the filing of the AAR and effective on the date the AAR is filed .
How are AARs calculated on returns ?
It is important to note , AARs do not amend the return in which the adjustment is requested . Instead , these adjustments are reflected in the year the adjustment is made . For example , if a partnership files an AAR for its 2019 tax return , those adjustments will be reflected on its 2022 tax return , assuming 2022 is the year they filed the AAR .
A partnership that files an AAR must calculate whether the requested adjustments result in an imputed underpayment ( IU ). A partnership must also report the IU on the AAR . If there is an IU , a partnership can either pay the tax resulting from the adjustment or it can push out all adjustments to the reviewed-year partners by making an AAR push out election . If there is not an IU , a partnership must push out all adjustments for the reviewed year partners to take into account for the current tax year .
How do AARs impact the partnership ’ s partners ?
If the partnership elects an AAR push out or the AAR contains adjustments that do not result in an IU , it must include Form 8985 and Form 8986 ( operates similiar to what used to be an amended K-1 ) with the AAR submission . Form 8986 must also be furnished to the partners on the date the AAR is filed with the IRS .
What happens when a partner receives a Form 8986 as a result of an AAR ?
The year the partner receives a Form 8986 is the reporting year and the rules for taking the adjustments into account are different for non-pass-through partners and pass-through partners .
Non-pass-through partners ( generally those who file Forms 1040 , 1120 or 990T ) who receive a Form 8986 because of an AAR will take the adjustments into account in the reviewed year . Since Form 8986 does not amend the return , the non-pass-through partner will report the total tax changes for the reviewed year .
Non-pass-through partners should use Form 8978 to calculate and report their tax impact of adjustments pushed out to them . If the calculation results in an additional credit , this can apply toward the current reporting year and the partner ’ s estimated tax payments can be adjusted to reflect this credit .
For example , if you are a non-pass-through partner who anticipates a credit from an AAR , you can reduce the payments on one of your quarterly estimated payments . So , if you expect a $ 200,000 credit , you can reduce your next quarterly estimated tax payment and keep that money instead of filing an amended return to claim your refund .
Pass-through partner entities ( generally , those who file Forms 1041 , 1065 or 1120S ) who receive Form 8986 must determine whether taking the adjustments will result in an IU . They should use Form 8985 to help calculate the adjustments , and they can either pay the IU or the push out the adjustments to their reviewed-year partners . Whether or not an IU is paid , adjustments that do not result in an IU must be pushed out to partners .
To learn more about AARs or to obtain assistance with calculating or applying these adjustments , contact Doeren Mayhew ’ s dedicated Tax Group today . ■
Issue 2 | 2022 VIEWpoint 11